THE CHANGING WORLD OF BUSINESS LENDING NACUSO Conference April 4-7, 2016
Mark Kilian CEO Community Business Lenders Service Company, LLC
Mark Cox CE...
THE CHANGING WORLD OF BUSINESS LENDING NACUSO Conference April 4-7, 2016
Mark Kilian CEO Community Business Lenders Service Company, LLC
Mark Cox CEO Innovative Business Solutions, LLC
Purpose of Changes • Establishes program and policy responsibilities that must be adopted and implemented as part of a safe and sound commercial lending program. • Clarify and modify current rule’s definitions of Associated Borrower, LTV Ratios and Net Worth. • Eliminate certain waiver requirements. • Adds new terms and definitions. • Changes criteria for establishing MBL limit.
So…What’s Changed • Movement from a prescriptive NCUA driven policy to a principles based policy established by the credit union with few specific regulatory requirements. • Waiver requirements. • Establishment of the “Commercial Loan” and the requirement of a Commercial Loan Policy. • MBL limit now the lesser of 1.75 times actual net worth of the credit union or 1.75 times the minimum net worth required under the FCU Act. • Non-member participations no longer an MBL.
Primary Definition Changes • Associated Borrower replaces Associated Member and introduces the concepts of direct benefit, common enterprise and control. • Loan to Value Ratio redefined so that the denominator is either the market value for collateral held longer than 12 months; or the lesser of the purchase price or the market value for collateral held 12 months or less. • Clarifies that the definition of net worth provides a cross reference to NCUA’s prompt corrective action and risk-based capital rules in part 702, addressing the methodology for determining a credit union’s net worth.
Elimination of Waiver Requirements on Personal guarantees Aggregate construction & development (C&D) loan limit. Minimum borrower’s equity for C&D loans. LTV requirements. Maximum aggregate unsecured MBL limit. Maximum aggregate net MBL to one member or group of associated members. • Eliminates nonmember participations as MBLs. Now commercial loans. • • • • • •
Commercial Loans New regs distinguish between MBLs and Commercial Loans • Includes any commercial, industrial, agricultural, or professional loan with some exceptions: 1. Loans made by a corporate credit union. 2. Loans made by a federally insured credit union to another federally insured credit union. 3. Loans made to a CUSO. 4. Loans secured by a 1-4 family residential property. 5. Loans secured by a vehicle manufactured for household use.
6. Loans secured by credit union shares or deposits in other Financial Institutions. 7. Loans to a borrower or associated borrower of $50,000 or less Loans that are commercial loans but that don’t count towards MBL limit: 1. Loans that federal or state agencies insure the full repayment, full guarantee or provide an advance commitment to purchase the loan. 2. Non member loan or non member participation.
Requires Development of a Commercial Loan Policy containing: 1. Types of commercial loans permitted 2. Trade area 3. Maximum loan amounts, both in terms of loan category and to any one borrower or group of associated borrowers 4. Qualifications and experience requirements for lending staff 5. Loan approval process 6. Underwriting standards 7. Risk Management Process
• Credit Union Board is ultimately accountable for the safety and soundness of commercial lending activities. New regs modify the experience and expertise requirements for all personnel involved in business lending and delineates qualifications required for a credit union’s senior executive officers and staff. • Eliminates current 2 year minimum experience requirement and replaces it with a broader, more flexible principals based approach for evaluating the staff involved in commercial lending with an emphasis on risk management. OR • Continued use of MBL CUSOs for required expertise.
State Chartered Credit Unions • Seven states already adopted NCUA regs • Connecticut, Illinois, Maryland, Oregon, Texas, Washington and Wisconsin. • Requires State Supervisory Authorities to administer an MBL policy at least as stringent as NCUA’s rules, but leaves them the ability to adopt more stringent policies if desired
Effective Dates • Elimination of waiver requirement on personal guarantees effective 60 days after final regs posted to Federal Register (May 13, 2016) • All other components are effective January 1, 2017
